Jul 12, 2021 3:24:00 AM | 8 min read
For tech platforms, the choice between building an embedded insurance program in-house and working with an embedded insurance platform can be a difficult one. On the surface, developing your own program and building it yourself feels like a natural fit. What better way to create exactly what you want for your users than to build it yourself? But, even if you have a clear vision of what an ideal program for your customers would look like, the complexity of the product and program design in a heavily regulated industry changes the scope of the project. Making the prospect of building the offer internally less appealing for most tech platforms.
That’s because building embedded insurance isn’t as easy as having a vision - that’s just the start. Insurance and protection-related products are highly regulated - so building your own compliant program is challenging and expensive, not to mention, difficult to maintain long-term.
However, the benefits of embedded insurance are so appealing that many tech platforms choose to focus on the vision and rely on an embedded insurance platform to handle the insurance infrastructure and program design.
Still not convinced? Let’s look more closely at the challenges of building an embedded insurance program in-house, the regulatory environment today and how embedded insurance platforms can help you to build and manage a compliant program yourself.
Building Embedded Insurance Programs In-House Can’t Be That Bad, Right?
You’ve already proven you can create tech, you have a platform up and running today. You’re clearly an innovator. So, what is so difficult about creating your own embedded insurance or protection program? Well, lots of things. But focus on the challenge of navigating compliance in such a highly regulated industry. It can make platform design and growth way tougher (and more expensive) than you anticipate. You’ll likely need to either hire insurance experts in-house or rack up expensive bills with expensive lawyers that specialize in insurance – or risk large fines.
Complying with regulation isn’t the only thing that makes the self-build option a tough one. You also need the right technology. Even if you have a highly-skilled tech team, they might not have experience with insurance-specific solutions. It will take time and resources to create the complex back-end and front-end insurance infrastructure. If you can afford to have a team working solely on insurance, it could be a good fit. But most growing tech platforms prefer to focus their engineering resources on their core offer.
It’s important to keep in mind that every program will take some engineering resources to set up - even if you work with an outside partner - there will likely be an API integration that requires their time and attention. What is often forgotten in the early stages of the process is how much time is needed from your engineering team to simply maintain an embedded insurance program once it is up and running.
Don’t Discount the Regulatory Environment Embedded Insurance Falls Into
If you are looking at offering a protection program to your users there are some obvious benefits to understanding the regulatory environment. You need to understand what rules and regulations you’ll be subject to. If your program isn’t compliant there are some serious consequences to be aware of. To make matters more confusing, each state handles insurance and insurance-related products differently. If your business operates in more than one state (or country) you should be aware of all the regulations that are applicable in the states you offer your embedded program.
Why – And How – Is Insurance Regulated In The US?
In the US, insurance is regulated by each state and has been since the McCarran-Ferguson Act (MFA) in 1945. Although at that time most insurance companies were in favor of this, these days, many companies operate nationally or internationally and would prefer regulation at a federal level. But for now, each state has its own set of rules and their insurance departments oversee insurer solvency, market conduct and rates.
What About Licenses – How Do They Work?
According to ICLG.com, an insurance company must be licensed before it can do business. This licensing is also regulated by the states, so insurance companies must get a license to do business in a particular state. Then, once licensed in one state, they can also seek licenses in other states as a ‘foreign’ insurer. Insurers incorporated in a foreign country are called ‘alien’ insurers in the U.S. jurisdictions in which they are licensed.
What Happens If An Insurance Company Becomes Insolvent?
It’s a lot more important that an insurance company stays solvent than a regular company, for obvious reasons. So if an insurance company is struggling financially, state regulators can try to save it. How does this work? All states have organizations known as guaranty funds (of which insurers are required to be members) through which the property/casualty insurance industry covers claims against insolvent insurers.
How Are Rates Regulated?
The way rates are regulated varies hugely across different states. However, according to ICLG.com, three principles guide every state's rate regulation system: that rates be adequate (to maintain insurance company solvency), but not excessive (not so high as to lead to exorbitant profits) nor unfairly discriminatory (price differences must reflect expected claim and expense differences).
Does Your Embedded Program Even Have to Be Insurance?
Even though you are an innovator - it’s hard to build an innovative insurance program when you aren’t an expert at the legal complexity of insurance. One of the questions we ask ourselves all the time is - does this even have to be insurance?
Insurance innovators like Tint come at the unique challenges that tech platforms face when trying to protect their users. In many cases, an insurance program is exactly what is needed to get the job done. But - there’s plenty of cases when a different strategy can effectively make your vision come to life.
Insurance is a complex and evolving landscape that, unless you’re an expert, can be difficult to navigate.
That’s why we’re dedicated to helping you make your vision a reality in an efficient, effective, and compliant way - whether that requires a more traditional embedded insurance - or innovative protection or warranty programs.
The Case for Finding A Partner
Working with a partner who knows the world of insurance gives you the chance to enjoy the benefits of owning your own embedded insurance program with less risk. When built properly, an embedded insurance or protection program can boost user confidence, increase conversion rates and even create a profit center for your business.
A good partner should be able to take your vision and design a program that is relevant for your users, meets compliance requirements, and can scale with your business. A great partner should be able to push innovation and take your program one step further - creating an additional revenue stream for your business.
A recent article in Forbes examined why businesses should buy their next software solution rather than build it themselves. The reader is asked to “estimate the initial internal development costs, as well as ongoing maintenance, required here. The burden of product development, quality assurance, maintenance, platform migration and patch fixes are owned by the solution provider, while in-house development will usually require years of continued development beyond the initial project scope. In most cases, the vendor gains efficiencies because of its large customer base, so it can often charge less for implementing and maintaining an established product than it would cost to support a one-off, homegrown application.”
This is certainly true if you partner with Tint for your in-house embedded insurance program. Because although there is the cost of leveraging an engineer to work on the implementation of your program, once you get started, your business can benefit from all the profits, instead of an insurance provider.
In terms of time, depending on the complexity of your program, it may take a few months to get everything set up before you can launch and start offering the program to end-users. But compare this to building the program yourself, which could take years. With Tint, our in-house experts become your in-house experts, so you can be up and running as quickly as possible.
You Don’t Have To Build To Bring Your Embedded Insurance ‘In–House’
It’s a relief to know that if you want to create your own in-house embedded insurance program, you can do so without building all the insurance infrastructure and designing the entirety of your program yourself. Because, as we’ve discussed, if you aren’t an insurance expert, it can be tough to build your own program.
Working with a partner, like Tint, who knows insurance well, you can make the vision of the insurance program you have in your head a reality for your platform users, but without the uphill climb. That’s because we offer all the software, compliance, and access to capital that tech platforms need to bring their insurance vision to life. And not just that: we allow you to have the flexibility you will need as you grow while reducing any upfront costs to getting started.
An embedded insurance program might be something you think your team can build themselves; however, navigating this complex space makes it a real challenge, and one you might not have planned for. Plus, the ongoing costs add up, making it difficult to maintain long-term. We can help you enjoy the benefits of a program and give your customers a better experience – but also take the hard work out of it, so that it can be good news for your bottom line too.
Tint makes it easier by providing you with a platform to build and manage your embedded insurance or protection program. But you’re not on your own: we work with you to structure the program and make it compliant.
It’s tough to build an embedded insurance program in-house, but we’re here to help guide you through the process. If you’re planning to make user protection a priority, let’s talk about building your embedded insurance program.
This website is made available to you for informational purposes only. It does not provide specific legal advice and is not a substitute for competent legal advice from a licensed attorney. The material on this website may not be used by any person or entity without the express written consent of Tint.